Will American/US Airways merger boost fares by 10 percent?

As expected, American Airlines and US Airways announced their $11 billion merger on February 14. The good news for consumers is that the Justice Department has not approved the deal -- and if there are still antitrust laws in America, Justice's decision should hinge on how much of a price increase consumers will pay for increased industry concentration.

The new company -- dubbed American Airlines and 72 percent controlled by American Airlines creditors and 28 percent by US Airways shareholders -- will fly "950 planes and 94,000 employees, would be based in Fort Worth. It would retain key hubs in Phoenix, Charlotte, Philadelphia, Chicago, Dallas-Fort Worth, Miami, New York and Los Angeles, with 6,500 daily flights," according to the Washington Post.

The industry is doing quite well and does not need further mergers to achieve profitability. With 2012 profits of $6.7 billion and an $8.4 billion profit forecast for 2013, according to Reuters, the airline industry is making plenty of money. And according to the Bureau of Transportation Statistics, the price of a domestic round-trip flight has climbed "nearly 20 percent, when adjusted for inflation" between 2002 and 2012, according to AP.

But when it comes to predicting how this merger will affect future airfares, there seems to be quite a diversity of opinion -- ranging from no inflation-adjusted increase to as much as a 10 percent fare increase for consumers.

For example, PwC US conducted a study indicating that airline mergers result in a drop in inflation-adjusted airfares. PwC US's December 2012 study reviewed federal transportation data and found that "the average domestic ticket price rose 1.8 percent a year from 2004 to 2011," according to USA Today. Inflation averaged 2.5 percent during those years, according to the Bureau of Labor Statistics.

William S. Swelbar, a researcher at the MIT International Center for Air Transportation is on the board of Hawaiian Airlines -- that serves $14 meals and $12 cocktails, according to BusinessInsider.

Mr. Swelbar favors the merger, noting that "it's not going to impact airfares significantly," he told the Post. That is as long as the costs of fuel and labor don't rise because airlines are already "passing on the increased cost of fuel and labor to the consumer."

As someone who has been traveling for decades, I can remember a time when airlines did not charge travel fees and they provided great food at no extra charge. For example, there used to be an airline called Midwest Express that flew a convenient direct flight from Boston to Milwaukee. Midwest Express flew a two-by-two leather seat, all-economy class service that included gourmet food served on polished China and fresh-baked chocolate chip cookies.

In recent years, the food disappeared but the chocolate chip cookies lingered. Midwest Express was taken private by TPG, acquired in 2009 by Republic, which was in turn bought by Frontier Airlines and in 2011, Frontier cut the direct flight from Boston to Milwaukee.

Now we cannot get a convenient flight from Boston to Milwaukee so we fly to Chicago and drive to Milwaukee.

As for airfare, to reflect the consumer's actual costs, it helps to include the new fees that airlines are charging. Airfarewatchdog found that American Airlines charges the industry's highest travel fees. For example, American Airlines possible fees per flight total $1,119. This includes:

• $25 for the first checked bag;• A booking fee of $25 by phone or $20 to $35 in person; • A $4 to $99 per segment advanced seat selection fee for preferred seats; and• $4 to $10 for food and $6 to $7 for drinks in flight.

Meanwhile, Rick Seaney, co-founder of FareCompare.com, claims that airlines pushed through six fare increases in 2012. And he expects airfares to rise between 3 percent and 6 percent in the U.S. because "airlines will succeed in properly balancing supply and demand by trimming the number of seats they offer to match decent, but bordering on tepid, demand," according to the Chicago Tribune.

But those fares could rise even higher. As George Horbica, a co-founder of Airfarewatchdog, told BusinessInsider, more airline consolidation in recent years means passengers have fewer other airlines to choose from in order to avoid fees. This means "fare increases [that Mr. Horica] expects to be lower than 10 percent."

And higher fees and airfare are not the only factor in considering value to consumers. The Justice department should also consider a decline in the quality of service. And by that measure, this combined airline promises to deliver more passenger misery than most any other airline.

How so?

When it comes to on-time performance American ranked 14th out of 15 airlines in government rankings for in 2012 -- while US Airways was fifth. To be fair, United was the worst when it comes to the rate of complaints -- American and US Airways shared the next worst rank on that measure, according to AP.

I hope that Justice will protect the middle class and stop letting the airlines enjoy their profit spurt by siphoning cash from consumers through competition-reducing mergers like this one.